Last year China announced that it had eradicated extreme poverty. As of 2018 the number of people living in extreme poverty in India had fallen below the estimated 99m people living in extreme poverty in Nigeria.
This is explained by the fact that Brazil, Russia, India, China and South Africa (BRICS) had accounted for only 8% of global economic output in 2000, but from 2000 to 2011, the BRICS grew on average by a startling 17% per year, in nominal US dollars at market-exchange rates, while the G6 grew at just 4%. Indeed, they reached half the G6's GDP by 2017. In 2021, the IMF projects, BRICS GDP will be worth about 57% of the G6.
Growth in advanced economies and developing ones, however, slowed a lot in the 2010s. From 2011 to 2019, G6 growth fell by more than half to below 2% per year. Growth across the BRICS, on the other hand, dropped by nearly 70%, to just 5% per year.
The picture across other low- and middle-income countries looks broadly similar. From 2000 to 2011, the weighted average annual growth rate of GDP, in US dollar terms, was a robust 9% for emerging economies when the BRICS were excluded. Real income per person in developing countries as a fraction of real incomes in America was 12.1% in 2001. By 2011 it was almost half again as much: 17.8%.
But by the time that measure reached its peak-18.4% in 2013-incomes in the Middle East, Central Asia and Latin America were already in decline relative to those in the United States. By the next year incomes in Africa were dropping further behind those in America, too. Only South and East Asia and the emerging parts of Europe have kept gaining on American incomes. For the developing world as a whole, real income per person has fallen back to 18.1% of what it is in America; not a terrible reverse, but definitely a stagnation.
Becoming rich seemed little more than a matter of borrowing technologies from more mature economies and equipping workers with more capital, of both the physical and human sort.
Yet in the aftermath of the World War II joining the ranks of the rich was revealed to be harder for the previously colonized world than had been thought. Only a few countries made the leap from poor to rich over the latter decades of the 20th century: a South Korea here and a Taiwan there.
It was against this background that the rise of the BRICS seemed truly startling. But it was hardly an overnight success. In the late 1970s China began a long process of economic liberalization; India started relaxing state control over its economy in 1991. Debt and financial crises which had dealt devastating setbacks to growth from the 1970s saw a broad-based shift in policy across the developing world towards becoming more open to trade and keeping government borrowing and inflation in check.
To this already supposed to be healthy situation three further catalysts were added. One was the arrival of persistently low interest rates and globalized finance, which provided a lot of money willing to seek out opportunities in emerging markets judged to be more stable than they had been. Another was a broad and sustained rise in commodity prices, which boosted the fortunes of many developing-world economies.
The third was explosive growth in trade. Manufacturing for export, a time-tested route to catching up, had once required the slow and difficult process of building up an indigenous industrial base. But as production processes once contained within a single plant or country spread out along global supply chains it became possible for poorer economies to begin producing for export by grabbing hold of small pieces of production networks, rather than recapitulating everything.
As a share of global GDP, trade rose from 39% in 1990 to 51% in 2000, eventually reaching a peak of 61% in 2008. China, through which most of the new supply chains ran, saw its share of global exports rise from about 2% to 9% over the same period. Its share of global GDP rose from 4% to 12%.
The added effects of two of the three catalysts, the commodities boom and the boom in trade, both wore off in the 2010s. The IMF's index of commodity prices roughly tripled from 2000 to 2011. After that it began to fall, and in doing so exposed those economies which had enjoyed a superficial boom built on higher prices for their resource exports and easy credit.
Trade growth also slowed. Having recovered encouragingly after the global financial crisis of 2007-09, in the mid- 2010s trade began to decline slightly as a share of global GDP. There were a number of reasons for this, but an important one was a deliberate attempt by the US to initiate a sort of a trade war against China in order probably to deny it the fast paced progress it was achieving threatening the very global economic hegemony of the US. China had retaliated in self-interest. This has seemingly increased state intervention as the Chinese government understandably made a push for self-sufficiency.
An analysis by Shoumitro Chatterjee of Pennsylvania State University and Arvind Subramanian of the Centre for Global Development notes that, though China has not given up ground in terms of manufacturing exports in aggregate, it has ceded some market space in particularly labour-intensive manufacturing industries such as production of footwear, clothing and furniture. And yet its losses have, on the whole, been quite small, and have led to limited and concentrated gains in export-market share for other economies. China's share of global footwear exports declined from 40% to 32.5% between 2008 and 2018, for example; Vietnam-the biggest beneficiary of changes in China's export profile-captured 5.9 of the 7.5 percentage points in export space vacated by China.
Very poor countries in Africa could still enjoy a big boost to productivity and incomes by increasing the role of manufacturing in their economies. But as Subramanian notes, the development of machines which can handle ever more of the tasks now done by human workers at ever lower costs cannot help but limit the scope for convergence via industrialisation.
In 2020, output across the emerging world fell by 2.1%. That average is skewed upwards, however, by the fact that China, having managed to contain its initial outbreak, actually saw its economy expand. Other major emerging markets fared far worse. India's economy shrank by 7.3%, Brazil's by 4.1%, South Africa's by 7%. The World Bank estimates that the ranks of those living in extreme poverty are likely to have swollen by 150m.
Hopes for a robust turnaround in 2021 have foundered on the spread of the Delta variant and the slow pace of vaccination outside rich countries; more than half the developing-world population may still not be vaccinated by the end of this year. On July 27th the IMF, which in April had expected India to grow by more than 12% this year, cut that estimate to 9.5%. Across the emerging world as a whole it expects 6.3% growth this year and 5.2% in 2022.
Investment in human capital has been badly hit by the pandemic. Although students around the world lost schooling time to the interruptions caused by the pandemic, those in the poorest nations suffered most. While children in advanced economies missed the equivalent of 15 or so days of instruction on average in 2020, those in emerging markets missed about 45 and children in low-income countries 70. Poor economies can scarcely avoid educational setbacks.
Our excess-mortality model suggests that 8m-16m people have died in the pandemic. The central estimate is 14m. The developing world is vulnerable to the virus, especially lower-middle-income countries where remote working is rare and plenty of people are old. If you strip out China, non-rich countries have 68% of the world's population but 87% of its deaths. Only 5% of those aged over 12 are fully vaccinated.
The West's increasing protectionism will also limit export opportunities for foreign producers which, in any case, will be less advantageous as manufacturing becomes less labour-intensive. Unfortunately, rich countries are unlikely to make up for it by liberalizing trade in services, which would open up other paths to growth. And they may fail to help exposed economies such as Bangladesh-a success story-adapt to climate change.
Universal access to digital technologies is now vital, as is an adequate social safety-net. But the principles of how to get rich remain the same today as they ever were. Stay open to trade, compete in global markets and invest in infrastructure and education.
That is the route to take for Pakistan as well. Invest in social and physical infrastructure while adopting the trans-shipment trade model making the most of China Pakistan Economic Corridor (CPEC).
Copyright Business Recorder, 2021
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